Selling to consumers? Things are going to change…

The Digital Markets, Competition and Consumers Act 2024

The long-awaited Digital Markets, Competition and Consumers Act 2024 (“the Act”) was finally passed by Parliament on 24 May 2024 and is to come into effect in autumn 2024. The Act will transform the consumer protection enforcement landscape in the UK, and aims to protect consumers from “rip-off” business practices such as subscription traps and fake reviews. In this article we focus on some of the Act’s key provisions.

Fines of up to 10% of turnover

Financial penalties for a breach of consumer law will be very significantly strengthened  - this is the real “headline-grabbing” part of the Act. The maximum financial penalty for breach of consumer law will be increased to £300,000 or, if higher, 10% of global turnover. Note that this global turnover figure could potentially include that of parent and subsidiary companies too.

By calculating the penalty using the higher of a fixed amount or a percentage of global turnover, the Government seeks to deter unlawful practices by all kinds of businesses, whether they are small turnover sole traders or large global companies.

The Act also provides the Competition and Markets Authority with additional powers to enforce breaches of consumer law directly without the need to use the existing court process, thereby making enforcement quicker and easier.

Subscription contracts

Subscription contracts are business-to-consumer contracts for goods that renew automatically, and/or which include a free trial (or a discounted price for a period), following which the consumer becomes automatically liable to make payments (or to make payments higher than the original reduced price). New rules will regulate subscription contracts, including:

Pre-contract information - Before a trader enters into a subscription contract, the trader must give the consumer certain key pre-contract information immediately before the consumer enters into the contract, in writing. The required key pre-contract information includes the frequency and minimum amount of payments, the total amount payable under the contract, and details of how and when the consumer can bring the contract to an end.

Criminal offences - It is a criminal offence if a trader fails to provide pre-contract information about the initial cooling-off period (as to which, see below). Officers of a company can also be personally liable for this offence if it has been committed with their consent or connivance or it is attributable to any neglect on their part.

Cooling off rights - A consumer has the right to terminate a subscription contract:

• during an initial 14-day cooling-off period after they receive goods under the contract (or 14 days after the day the contract is entered into for other contracts where goods are not supplied); and
• within 14 days after a “relevant renewal”, which occurs when:
  - A consumer first becomes liable for a renewal payment after a free-trial (or reduced price trial period); or
  - A consumer becomes liable for a renewal payment and the next payment is not due for 12 months or more.

Whilst cooling-off rights for goods sold over the internet to consumers have been in place for many years now, in some respects the Act extends these rights further, in that some products that are exempt from cancellation rights when supplied under a one-off sale over the internet will not be exempt from those cancellation rights if they are supplied under a subscription contract within the scope of the Act. These include (i) customised, bespoke or personalised goods, (ii) goods sealed for health protection or hygiene reasons which are unsealed after delivery, and (iii) goods that are liable to deteriorate or expire rapidly.

Reminder notices - Businesses must also provide the consumer with a reminder notice confirming that they’re liable for renewal payments unless they terminate the contract. Information that needs to be explained in the reminder notice includes the renewal payment date and the amount due, any price increase compared to the previous payment, and the steps the consumer can take to terminate the subscription contract.

Termination rights - Businesses must enable consumers to cancel a subscription in a straightforward way and without having to take steps which are not reasonably necessary for ending the subscription. Examples of unreasonable steps include making the consumer complete an excessive number of steps in a cancellation journey, and consumers having to phone the business to cancel when they signed up online.

Drip pricing - The Act introduces measures to tackle “drip pricing”, which occurs when consumers are shown an initial price for a good or service, only for additional fees to be revealed (or “dripped”) later in the checkout process. Under the Act, businesses will have to set out the total, all-inclusive price at the outset. If this is not possible, the business must clearly explain to consumers how the final total price will be calculated.

Fake reviews - The Act aims to tackle fake reviews in various ways, such as:

• prohibiting the submission or commissioning of fake consumer reviews or reviews that conceal the fact that they have been incentivised;
• prohibiting the publishing of consumer reviews in misleading ways;
• requiring businesses to take reasonable or proportionate steps to prevent fake or misleading reviews. This item will be of particular interest to traders as it is not currently clear what “reasonable steps” will mean in practice.

What do businesses need to do?

Businesses selling to consumers need to review their existing processes and terms and conditions, particularly in relation to subscription contracts, to ensure that they comply with the new provisions of the Act. Failure to do so could result in very substantial penalties, and even criminal liability.

What can we do to help?

If you need advice in relation to any aspect of the Digital Markets Competition and Consumers Act 2024 or assistance with your terms and conditions, please contact either James Sarjantson on 0113 201 0401 or ,ku.o1719386437c.fcl1719386437@nost1719386437najra1719386437sj1719386437 or Thomas Taylor on 0113 204 0407 or ku.oc1719386437.fcl@1719386437rolya1719386437tt1719386437.